The AGA Weblog

Too Many Chiefs? Do We Need to Change the Way We Govern Our Federal Government Support Operations?

By Patricia E. Healy, CGFM

Patricia E. Healy, CGFM, is an executive consultant at CGI Federal. She recently retired after serving almost nine years as deputy CFO of the U.S. Department of Agriculture. She is a fellow of the National Academy of Public Administration.

I recently retired from the federal government having most recently served as the deputy chief financial officer of the U.S. Department of Agriculture. Before I left, many of us were already discussing the upcoming transition to a new administration. Since I left, I have been part of or attended forums sponsored by the Council for Excellence in Government, the National Academy of Public Administration and others intended to examine where we have been, where we need to go and how best to represent this to the new administration.

In these forums, or accompanying hallway conversations, participants begin to reflect on the role of the Chief Financial Officers Act of 1990 in reforming financial management in the federal government. Invariably this leads to a discussion of the role of the chief financial officer (CFO) in our agencies and whether the CFO is now only focused on compliance issues (such as financial statements, internal controls) and not enough on supporting overall agency program objectives. These conversations are important, as it is always good to engage in self-examination and to respond to the ever-changing, evolving environment of the federal government. However, rather than focus solely on the role of the CFO, I wonder if we might not need to take a larger view of how we govern our support infrastructure in the federal government.

Since 1990, we have seen the emergence of chief financial officers, chief information officers, chief technology officers, chief human capital officers, chief acquisition officers and chief performance officers. They all represent infrastructure operations intended to efficiently and effectively support program mission. Yet in most cases, these operations are by law, regulation or past practice, stovepipe functions tasked with compliance objectives of their own. They are funded by ever-decreasing discretionary dollars, and compete for these dollars among themselves and with agency mission programs funded from discretionary accounts. This can create an atmosphere where the efficiency and effectiveness of the overall agency operations, infrastructure and programs, are not being addressed. Further, opportunities to leverage funds and staff resources across functional areas to solve common problems are often lost. There is no single executive in charge of the entire enterprise infrastructure, one who can view operations holistically and facilitate solutions and set the priorities across the enterprise.

So given this reality of the federal government management condition, how can we manage effectively and efficiently for strategic outcomes across multiple functions and “chiefs”? Peter Weill of the Massachusetts Institute of Technology, in his book (with Jeanne W. Ross) entitled IT Governance: How Top Performers Manage IT Decision Rights for Superior Results, reported on a study of more than 250 large global organizations and found that top-performing organizations succeed where others fail by implementing effective IT governance. My experience, and that of my colleagues here at CGI, has shown that governance functions such as effective and recurring planning, structured steering and operating committees across multiple chiefs, clear division of roles and responsibilities, and rigorous processes and monitoring lead to increased performance, accountability and control of business and IT functions.

What has your experience been in regard to successfully navigating cross-domain collaboration for strategic results? What practices have you seen work?

MONDAY: Sheila Weinberg, Truth in Accounting, on "Running Deficits When Your Balance is Balanced"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Can We Contract Out the Human Capital Issue?

By: Joseph L. Kull, CGFM

Joseph L. Kull, CGFM, a member of AGA’s Washington, D.C. Chapter, is a director in the Washington Federal Practice for PricewaterhouseCoopers LLC.

So can we contract out the human capital issue? Sounds crazy, doesn't it? But, hey, why not? If we can contract out a large part of our security force in the Mid-East, then contracting accounting should be a slam dunk.

Yes, we have a human capital crisis on our hands. Not a day goes by when the topic isn't in the news, especially in the federal sector. We are facing a tsunami of retirements and we’ve known that for years, and now we act surprised, like these people were NOT going to retire? They may be old but they’re not crazy.

We then changed the retirement package for feds with the idea of making them more portable so they can go back to the private sector—no more golden handcuffs that tied many of us up in the system for at least 30 years. So now they are portable and they are transporting themselves back to the private sector to work for contractors.

Why? Because at about the same time as the pension change occurred, there was also a big wave of contracting out of government services. It was called OMB Circular A-76 and it changed the landscape, didn’t it? More and more administrative functions got “A-76’d,” reinforced by streamlining initiatives like NPR and PMA.

No doubt more and more work will be contracted out. Is that the right way to go, the best for our citizens and our country? How are we going to find the right people? Can hired guns—literally and figuratively—do as good a job as bureaucrats? What about organizational knowledge, or how about the loyalty that comes from believing in the agency and its mission? Not to be old fashioned, but how about, very simply, the President Kennedy “ask not what your country can do for you…” kind of call to public service?

There is a price to pay for a government of bureaucrats. Seems there is also a price to pay, literally and figuratively, for a government that is dependent on the private sector for basic services.

In the long run, will we have a better, more efficient, effective government with more contractors and fewer feds? In the long run, do we have a choice? And, regardless, WHERE will the people come from? Are we on a slippery slope here, with perhaps even the continuity of government?

TOMORROW: Patricia E. Healy, CGFM, Executive Consultant, CGI Federal; recently retired as Deputy CFO of the U.S. Department of Agriculture, on "Too Many Chiefs? Do We Need to Change the Way We Govern Our Federal Government Support Operations?"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Taking a Fresh Look at Circular A-123 Appendix A—Three Years Later

By: Robert Maitner Jr., MGA, CGFM

Robert Maitner Jr., MGA, CGFM, an at-large AGA member, is a senior managing consulting with IBM’s public sector financial management practice.

In December 2004, early into fiscal year 2005, the U.S. Office of Management and Budget (OMB) issued an update to one of its better known and widely regarded circulars, A-123, Management’s Responsibility for Internal Control. This was the first revision to the circular since June of 1995, and included for the first time the now infamous Appendix A, Internal Control over Financial Reporting, effective with fiscal year 2006. The original A-123, which was a natural outgrowth of the Federal Managers’ Financial Integrity Act (FMFIA), came into being in 1982 and was known as OMB “Internal Controls Guidelines.” The early version of the document included guidelines for organizational and management internal controls, and was tied to the requirements of FMFIA, such as the annual FMFIA statement of assurance over internal controls.

More than 25 years later, federal agencies are still preparing the annual statement of assurance (SOA), but since 2006, with a twist. The new Appendix A required for the first time a separate statement regarding internal control over financial reporting as a subset of the overall FMFIA statement. Essentially, a second statement was added as part of the original.

The establishment of Appendix A was a direct response to the passing of the Sarbanes-Oxley Act of 2002. Following a series of high profile corporate scandals and accounting improprieties during the late 1990s and early 2000s, the federal government decided to crack down on publicly held companies. President Bush signed the Sarbanes-Oxley Act in July of 2002, putting into place a series of new stringent requirements surrounding internal control over financial reporting and including annual attestations by external auditors.

In particular, Appendix A requires:

• Strengthened process for conducting and documenting management’s assessment methodology • Documentation of the assessment method and key processes such that the reader can acquire an understanding of the process flow and controls • Direct testing of key controls to determine operating effectiveness • New assurance statement for internal control over financial reporting (as a subset of the overall FMFIA assurance statement)

All in all, this translated into more work to be done on the part of the agency chief financial officer (CFO) staff, as well as subordinate organizational levels.

Now three years into the new requirements, federal agencies continue to wrestle through process flows diagrams, narratives, risk analyses and controls documentation. Entire organizations have come into existence for the sole purpose of providing services related to compliance with both Sarbanes-Oxley and Appendix A, and naturally all of the big firms have gotten into the game. Some of the larger and better-funded agencies have been able to keep up with the requirements, either through additional staffing or outsourcing, while the smaller ones may struggle with the added burden.

This all leads to the question, “how effective has A-123 been in achieving its original goals?” And “has the impact to the agencies been worth the additional effort?” It would also be in line to take a look at the progress that some agencies are making in its efforts to achieve an unqualified audit opinion on its annual CFO Act financial statements, and how they are integrating those efforts with the Appendix A activities. And is there a relationship between the level of assurance provided by an agency and the status of its audit opinion? What do you think?

TOMORROW: Joseph Kull, CGFM, Director, Washington Federal Practice, PricewaterhouseCoopers LLC, on "Can We Contract Out the Human Capital Issue?"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Should the U.S. Formally Adopt the International Public Sector Accounting Standards?

By: Jesse Hughes, Ph.D., CGFM, CPA, CIA

Dr. Jesse Hughes is a Professor Emeritus at Old Dominion University, Norfolk, VA and past president of the AGA’s Virginia Peninsula Chapter. He is currently a consultant in many developing countries to assist them in establishing good financial management practices in line with the IPSAS. At the federal level in the U.S., he had 10 years experience as an internal auditor and 10 years experience as a financial manager for the U.S. Department of Defense prior to spending 20 years in academe teaching a variety of accounting courses.

Much is being written about the attempts to harmonize the Financial Accounting Standards with the International Financial Reporting Standards applied in the private sector. In addition, the AICPA standards on ethics are being harmonized with the International Federation of Accountants standards. Yet nothing appears to be on the horizon relative to harmonizing the public sector accounting standards in the U.S. with those in the international community.

The International Federation of Accountants (IFAC, located in New York) was established in to set international standards for auditing, education and ethics as well as for accounting in the public sector. The International Accounting Standards Board (IASB, located in London) retained responsibility for setting the international accounting standards for the private sector. Within IFAC, the Public Sector Committee (PSC) was established in 1986 to address the International Public Sector Accounting Standards (IPSASs). The IPSASs are based on the IFRSs that apply to the private sector but are modified, as necessary, for application in the public sector. The first IPSAS (Presentation of Financial Statements) was issued in 1996 and 26 IPSASs have been issued to date. The PSC was renamed the IPSAS Board in 2004 and the IPSASB presently has voting members from the accounting profession in 15 countries (including the U.S.) as well as three voting members at large. Many industrialized countries (Australia, Canada, France, New Zealand, UK, etc.) have adopted these standards for application in their countries and many other countries are in the process of implementing these standards.

In the U.S., the Financial Accounting Standards Board (FASB) was established in 1973 to develop accounting standards. It was subsequently decided that FASB would establish accounting standards only for the private sector and Governmental Accounting Standards Board (GASB) was established in 1984 to build on the governmental accounting standards for state and local governments that had been previously adopted. Both boards report to the Financial Accounting Foundation. A member of GASB is presently a voting member of the IPSAS Board, and many of the IPSASs that have been issued over the years have been influenced by those in existence at the state and local level in the U.S. However, the same is not true of the public sector accounting at the federal level in the U.S. The Federal Accounting Standards Advisory Board (FASAB) was established in 1990 to develop federal accounting standards and consolidated statements in line with those standards were first issued in 1997. A brief history of the US efforts to develop public sector accounting standards is published on the www.ifac.org/Store website in an article titled “The Road to Accrual Accounting in the United States of America” dated March 2006.

Much has changed over the years since public sector accounting standards were originally established. The IPSASB is now actively establishing the public sector accounting standards for worldwide application and many countries are adopting them. If the U.S. desires comparability with these countries through the public sector financial statements, the U.S. will need to formally adopt the IPSASs. Even if the U.S. does not formally adopt the IPSASs, the differences between the IPSASs and those published by the GASB and FASAB should be identified to determine if our U.S. standards need to be harmonized with the international standards.

Do you think any attempt should be made to harmonize our U.S. public sector accounting standards with those adopted by the IPSASB?

TOMORROW: Robert Maitner Jr., CGFM, Senior Managing Consultant, IBM Public Sector Financial Management, on "OMB Circular A-123 Appendix A: A Fresh Look Three Years In"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Changing the Face of AGA to Appeal to Generations X and Y

By: Kelly Stefanko, CPA

Kelly Stefanko, CPA, a member of AGA’s Virginia Peninsula Chapter, is the deputy city auditor, City of Norfolk, VA. She chairs AGA’s National Emerging Leaders Focus Group and serves as a member of the National Executive Committee.

AGA’s challenge to recruit, develop, motivate and retain key talent to meet its leadership needs is never ending. As younger leaders take over, their generationally-shaped workplace related habits, attitudes and values will reshape the organization. AGA should prepare itself for change.

Over the years through trial and error, the AGA National Office has accumulated a great deal of experience in what has and hasn’t worked with early career programming and has been responsive in tweaking its offerings accordingly. Great programs and incentives aimed at early careers already exist, some better known and used than others. While all chapters don’t have access to large populations of young professionals, all do face the challenge of succession planning and recruiting and developing new leaders.

Is being mindful of generational differences the way to attract future leaders? AGA thinks so and has ensured it keeps its ear on the pulse of 20- and 30-year-olds by establishing the National Emerging Leaders focus group. The focus group, which debuted March 5, provides younger members with a rare opportunity to be involved with AGA at the national level. In turn, they are charged not only to brainstorm ideas for how AGA‘s can better recruit and retain members from Generation X (currently aged 42 to 27) and Generation Y (currently aged 27 or younger) but also to help implement their suggestions by taking action on them at home in their local chapters. The focus group members, in becoming more invested in AGA, are a visible “front edge” of a new generation of leaders for the organization (coined “emerging leaders”).

What are some characteristics of the youngest generation in today’s work force (those 30 and younger)?

• High expectations of self: They aim to work faster and better than other workers.
• High expectations of employers: They want fair and direct managers who are highly engaged in their professional development.
• Ongoing learning: They seek out creative challenges and view colleagues as vast resources from whom to gain knowledge.
• Immediate responsibility: They want to make an important impact on day one.
• Goal-oriented: They want small goals with tight deadlines so they can build up ownership of tasks.
• Technology reliant and savvy: They communicate efficiently and quickly using electronic devices.

So, is it possible to market AGA as a collaborator to challenge the status quo, an avenue to gain self fulfillment, a constant in a workplace that might change many times over for some, an opportunity for volunteers who can only commit to short term leadership assignments and a leading edge user of technology so as to appeal to a younger generation? If so, how do we do it and what does it look like?

Is AGA’s investment in marketing to young people better aimed at new hires, more vested in the government with an existing job, than to college students who may not end up working in the government industry?

How can AGA quickly build value with young members who may not have the opportunity to attend its professional development conferences so they are apt to renew, particularly if membership costs them twice as much if they’re aging out of “early career” status and into full membership?

What are AGA’s competitors NOT providing that AGA should capitalize on in attempting to attract and retain young members?

Should AGA’s national conferences include a mentoring opportunity for first time attendees to be matched with a veteran conference go-er who can help make introductions and provide a model for networking techniques?

Younger people may be regulars at social networking through sites such as MySpace and Facebook, but are they “plugged-in” with blogs, such as this one?

These are the types of questions we’re posing to the Emerging Leaders Focus Group. What is your opinion on them? Let’s hear from you!

TOMORROW: Jesse Hughes, Ph.D., CGFM, International Consultant, on "Adoption by the U.S. of the International Public Sector Accounting Standards"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Are the IGs and Other Federal Auditors Doing Enough to Improve Government Accountability?

By: Mike Kristek, CGFM

Mike Kristek, CGFM, a member of AGA’s New Mexico Chapter, recently retired from the U.S. Department of Energy. He is a longtime member of AGA’s Journal Editorial Board.

On March 3, 1993 two documents were issued that speak to the question “Are the IGs and other federal auditors doing enough to improve government accountability?” The first document was the Gore Report on Reinventing Government (Gore Report). In this document, then-Vice President Al Gore noted that the federal government was filled with good people trapped in bad systems: budget, personnel, procurement, financial management and information. The report went on to note that the U.S. General Accounting Office (GAO, now known as the Government Accountability Office) had published a 28-volume report on federal government management problems and that the U.S. Office of Management and Budget had a list programs that carried a significant risk of runaway spending or fraud. Finally, it noted that in 1990 the Chief Financial Officers Act was passed to overhaul financial management systems and was followed in July 1993 by the Government Performance and Results Act, which introduced performance measurement throughout the federal government. The Gore Report then made 13 recommendations on how to improve the federal government’s financial management.

The second report was from the Office of the Chairman, Administrative Conference of the United States, titled Inspectors General: An Institution in Need of Reform (Administrative Conference Report). The report questioned if the IGs’ overall approach to improving accountability was workable and questioned if the IGs reports were getting the necessary public or congressional attention to fix outmoded financial management systems.

A November 2007 Federal Times article stated that the IGs were the vanguard for achieving government accountability. However, I believe the IGs fall short of that lofty goal. My basis for this pessimistic view—25 years as a federal auditor with the last 16 working for an inspector general of a large federal department, as well as the annual GAO reports that continue to show problems with government accountability. The IGs are hampered with resource issues that prevent them from doing the work necessary to actually improve government accountability. Specifically:

• Audit follow-up is extremely rare. Most IGs do not have the staffing necessary to perform current audits of all programs in their departments in a timely manner let alone follow up on previous audits. In the last few years, the IG I worked for discovered that on several occasions, department management concurred with recommendations and stated they would implement the recommendations. However, we found in a few instances that no action was ever taken despite assurances to the contrary. If recommendations are not actually implemented how do mangers hope to improve accountability?

• Large federal contractors want to have self-governance. Consequently, the large contractors are often very resistant to IG audits and inspections. Some go as far as trying to deny access for necessary documentation and do all they can to try and stop the audit. IGs, in this era of political correctness, try to not be seen as overly aggressive and want to cooperate so they are often reluctant to push the issues. If the contractors do not want the light of truth shown on their programs, does that mean they do not want to improve accountability?

• Finally, the Annual Financial Statement Audit is itself a stumbling block to improving federal government accountability. Approximately half of the IGs’ time and money is taken up by this financial audit. However, a dirty little secret of the auditing profession is financial audits will never uncover fraud, waste and abuse. They are not designed to do so. A financial audit will tell you if you have accounted for your expenditures. It will not tell you if those were wise or efficient expenditures. The financial audits will not determine if programs are valuable. The financial audits will not determine if the government is operating effectively. The Administrative Conference Report noted the need to examine programs and root out those that are poorly designed with multiple administrative layers and fail to fund new financial management systems. If huge financial and personnel resources go to an effort that only tells of what we already know (there is not good financial management in the federal government) how will the resources be found to do the necessary audits to achieve improved accountability?

My question for the readers of this blog is what can be done so the IGs can live up to their promise of being the vanguards for greater government accountability?

MONDAY: Kelly Stefanko, CPA, deputy city auditor, City of Norfolk, VA, on "Changing the Face of AGA to Appeal to Generations X and Y"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

City of Saco, Maine’s Experience with Citizen Centric Reporting

By: Lisa Parker, CPA

Lisa Parker, CPA, a member of AGA’s Maine Chapter, is a project manager with the Governmental Accounting Standards Board (GASB). Until recently she was the finance director for the City of Saco, Maine.

The City of Saco, Maine issued its first performance report, Delivery of City Services—Fiscal Year 2004, in January of 2005. This 94-page report measured the performance of all 11 city departments and omitted only the performance of the school department, which is governed by a separately elected Board of Education. Due to the size of the report, the performance information provided was not being fully utilized by a wide range of citizens in Saco to assess governmental accountability and to enhance their ability to make economic, social and political decisions. The performance information was, however, being used by department heads in the management of their departments in order to improve internal performance, and during budget deliberations with the city council to justify their requests for additional funding to enhance existing service levels. As a result, the city recognized that an additional communication mechanism would be needed to more effectively communicate performance information to its citizens and other potential users.

To accompany the city’s second annual performance report, Delivery of City Services—Fiscal Year 2005, the city also prepared a shorter handout version of the report that included the executive summary, one measure from each of the 11 departments, and the website address where the entire report could be reviewed. These handouts were distributed locally at city hall, the public library and major grocery stores. The city simultaneously began issuing a digital monthly newsletter, which highlighted the performance measurement information of one city department each month. However, the citizen satisfaction survey results were still not reflecting higher levels of satisfaction for the effective communication of governmental accountability.

In December of 2006, with the release of the city’s third annual performance report, Delivery of City Services—Fiscal Year 2006, the City of Saco, Maine, supplemented that report by becoming the first in the country to issue a Citizen-Centric Report following AGA’s recommended model. The four-page report was published in the local newspaper and a press conference was held to alert all media sources of this important release. Mayor Mark Johnston so eloquently stated, “We know that governments have a reputation for being good at collecting taxes but not necessarily as good at being accountable for how those tax dollars are spent. Saco wants to change that. This report has both the good and the bad. And while I’m glad to say there’s more ‘good’ to report in Saco these days, this report is chock full of challenges coming down the pike. We’re hoping to inform a thoughtful debate on these issues.”

The concise, four-page document is intended to engage citizens and spark their interest to learn more about city services delivered, policies established and how well the organization is achieving its goals and objectives. Charts and graphs aid in making the information visually aesthetic and easier to understand for those who do not care for the monotony of pages filled with text. Each page of Saco’s report covers specific information and has a reference to the city’s website where the entire volume of the comprehensive annual financial report, the distinguished budget document and the annual performance report can be reviewed for more detailed information. The Citizen-Centric Report will provide for comparability from one year to the next or with similar organizations if prepared consistently with the same type of information on each page. The contents of each page within the City of Saco report are as follows:
➢ Page 1: Strategic objectives and demographics
➢ Page 2: Notable accomplishments
➢ Page 3: Revenues and expenses for city operations
➢ Page 4: Challenges moving forward/future issues

This same format was used again with the dissemination of the city’s second Citizen-Centric Report in 2007. For complete copies of the city’s four AGA award-winning performance reports (Certificates of Excellence in Service Efforts and Accomplishments Reporting) and the two released Citizen-Centric Reports, please visit the city’s website at www.sacomaine.org. The three completed citizen satisfaction surveys can also be reviewed at this website, displaying an increase in citizen satisfaction with the city’s communication efforts between the second and the third surveys. Due to the fact that the second survey was conducted prior to the release of the 2006 Citizen Centric Report and the third survey was conducted after its release, the city has concluded that the increase in satisfaction can be attributable to this effort.

What types of citizen centric communication documents do your governments currently use to disseminate financial, budget and performance information? Do they engage citizens in assessing government accountability and in making economic, social and political decisions?

TOMORROW: Mike Kristek, CGFM, recently retired from the U.S. Department of Energy, on "Are the IGs and Other Federal Auditors Doing Enough to Improve Government Accountability?"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

AGA Asks You: If You Had 10 Minutes With the Next President...

AGA Asks You:

If you had 10 minutes with the next President of the United States, what would you want to tell him/her about government financial management?

Yesterday, AGA participated in a panel discussion with the National Academy for Public Administration (NAPA) that discussed this very subject. A White Paper will be published based on the panel's discussion and your feedback.

So you tell us what you'd tell the President.

TOMORROW: Lisa Parker, CPA, GASB, on "The Pioneering Citizen-Centric Reporting Efforts in Saco, Maine"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

It’s Never Too Late for Certification—Learning is a Lifelong Journey

By: Jeffrey C. Steinhoff, CGFM, CPA, CFE

Jeffrey C. Steinhoff, CGFM, CPA, CFE, a member of AGA’s Northern Virginia and Washington, D.C. Chapters, retired earlier this year after 40 years of government service. His most recent position was managing director, Financial Management and Assurance, U.S. Government Accountability Office (GAO). He is an AGA Past National President and is known in the Association as the “father” of the Certified Government Financial Manager (CGFM) Program.

For a financial management professional, learning is truly a lifelong journey. You have to always challenge yourself and never think that you have learned it all. You must always be looking to expand your horizons and learn new things. If you view your career as a job, it will always be a job. If you view it as a profession, it will be much more rewarding. But to get those rewards, you have to keep developing professionally. You have to keep learning. No one exemplified this more than the late Raymond Einhorn, AGA’s 11th National President and one of its founding members. Ray was active professionally and always learning until his passing at the age of almost 92. A month did not go by without me getting a call from Ray asking a professional question and wanting to get a copy of a GAO publication. To quote Ray, from AGA’s 2002–2003 Annual Report, “the hallmarks of professionalism and progress are continuing professional education and constant research.”

When AGA made the decision to move forward with the Certified Government Financial Manager (CGFM) Program, there was a strong belief that the special and unique skills of government financial managers needed to be recognized. The program is doing great thanks to the hard work of the National Office staff and the strong commitment of AGA members throughout our 94 chapters. Ray Einhorn was one of the first wave of members who became a CGFM at the young age of 80 as did the late T. Jack Gary, AGA’s third National President, who was 83 when he became a CGFM. Both Ray and Jack truly viewed their career as a lifelong profession.

For a new financial management professional, it is really a no brainer. You should seek the CGFM designation early in your career. It is something that you will have for the rest of your life. Being a CPA for 35 of my 40-year federal career was very important to my career advancement and one of my proudest accomplishments is holding CGFM certificate No. 1 from AGA. Now some will say they are at a stage in their career where one more certification does not really matter. They may already have another certification, or they may be looking to a retirement date in the not too distant future. Well, I would submit that it is never too late to become a CGFM. Try it, and you will enjoy it

Why do I so fervently believe this? Well, last year I studied for and successfully completed the examination to become a Certified Fraud Examiner. This was just eight months before I retired from government and more than 39 years into my career. Being a CFE was certainly not going to do anything for my career. My job at GAO was very demanding. With long work days and horrible traffic in the Washington, D.C. area, the norm was leaving my home at 6:30 a.m. and getting home at 7:30 p.m. or later. All of my studies were on weekends, and there is a lot of material to cover. Early on in the process, there were a few second thoughts. What had I gotten myself into since to complete the study course, which was a prerequisite to taking the CFE exam, you had to correctly answer 1,600 questions? Trust me, 1,600 are a lot of questions. But once I got into it, the learning was enjoyable and there was a sense of achievement when it came full circle.

So, it is never too late for certification. Learning is a lifelong journey.

My question to the bloggers is rather simple: What do you think? Is it never too late for professional certification? Is learning a lifelong journey?

TOMORROW: AGA Asks You: What's the most important thing the next Administration needs to know about the current state of financial management? Share your opinions for a White Paper being developed by AGA and NAPA.

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Demystifying Derivatives?

By: Eric S. Berman, CPA

Eric S. Berman, CPA, a member of AGA’s Greater Boston Chapter, is a deputy comptroller of the Commonwealth of Massachusetts. He is AGA’s representative to the Governmental Accounting Standards Advisory Council to GASB (GASAC) and a member of the Financial Management Standards Board.

I am proud to be your representative to GASAC, and I encourage you to give me your feedback.

You’ve read about them in your local newspapers and seen them in other forms of media. You’ve seen financial giants crumble because of them and housing foreclosures skyrocket. Of course we are talking about derivatives. Yet, many financial managers, even those that sign derivative contracts, know little if anything about them.

Why?

As accountants, we are used to debits on the left, credits on the right. We like to debit interest expense, credit interest payable and we’d better pay interest every 180 days and principal annually or you get a call from Aunt Martha who owns $10,000 of your government’s bonds in Jimmy’s college fund.

But the last year or so has not been kind to the little things that some financial whiz kid said when it was issued, “Oh don’t worry about that variable rate bond. I’ll buy it up for my mutual fund, and I’ll sell you a variable rate swap that will pay you a variable rate interest stream so that you effectively pay me fixed rate interest.” The whiz kid drew some squiggly lines on your white board and arrows and they matched. A few days later, a stack of bond documents, a smiling lawyer and underwriter later and you were in the variable rate bond business. Oh yes, to be extra safe, you bought some insurance.

Well, the best laid plans… You’ve just got a call from your bond lawyer and it seems that your insurance company is in financial trouble because it too sold a derivative to lower its risk. But that derivative failed because someone else along the chain failed. The mutual fund just called and the swap cannot pay because the market that it exists in has interest rates that have doubled or tripled in the past few days. And all you want to do is not to have to take a call from Aunt Martha because Jimmy’s check is due.

For governments, the goal of any derivative is to lower risk, unless the intent is on speculation. The purpose of a derivative is to fulfill the need of someone else in the market for what an issuer is selling – namely your government. An investor may demand a variable rate bond, but your government doesn’t have to effectively pay that variable interest rate if they contract with an investment provider to offset that variable rate. If the markets work, the derivatives work.

One of the more interesting set of quotes about derivatives is by Warren Buffett in his 2002 annual report:

“The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen). At Enron, for example, newsprint and broadband derivatives, due to be settled many years in the future, were put on the books. Or say you want to write a contract speculating on the number of twins to be born in Nebraska in 2020. No problem—at a price, you will easily find an obliging counterparty.”

In the same report, Buffett remarked that derivatives were “financial weapons of mass destruction” and they “generate reported earnings that are often wildly overstated and based on estimates whose inaccuracy may not be exposed for many years.” Finally he says “[L]arge amounts of risk have become concentrated in the hands of relatively few derivatives dealers ... which can trigger serious systemic problems.” These quotes were from 2003. Five years later, what have we learned?

GASB is about to issue standards for accounting and reporting derivative transactions. Derivatives are found not just in debt. If your government has bought fuel in advance, fixing a price based on an index, it is a derivative. If you know of a farmer who sells a commodity in advance of delivery, that is a derivative. Both of these are called normal sales contracts and are out of the scope of the exposure draft, but they are derivational in nature.

GASB will also issue a Comprehensive Implementation Guide to the new standards, with loads of questions, examples, tables, journal entries and a full glossary.

How should GASB and AGA best train you, your staff and your stakeholders about the upcoming accounting and disclosure rules and best practices with regard to these contracts? Even if the implementation date is a year from now, would you consider early implementation for the sake of transparency in reporting if you understand the accounting and disclosure needs?

TOMORROW: Jeff Steinhoff, retired managing director, Financial Management and Assurance, GAO, and AGA Past National President on "It's Never Too Late for Certification—Learning is a Lifelong Journey"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.